Note the following:
•?The chart shows The Arora Report signal to protect long-term portfolios up to 57% on Feb. 19, 2020, when the S&P 500 Index SPX, +7.03% was hitting a new high. The chart shows that the protection was increased up to 86% shortly thereafter.
•?Who are the naked investors? The naked investors are those who were fully invested in the stock market at the peak, and many were buying on margin. In spite of warnings, these investors chose to go “naked” — that is, without any protection for their portfolios. This was like going out naked during winter.
•?The data we gather at The Arora Report shows that for the most part, naked investors are still fully naked. They continue to believe the best strategy in the stock market is to be always fully invested because the stock market always goes up.
•?Data from the 1987 crash, the 2000 technology bubble and 2008’s Great Recession show that naked investors hold on until the stock market rallies 20% to 30%. Upon such a rally, naked investors breathe a sigh of relief that their losses are smaller, and they start selling.
•?When the stock market goes about 5% to 10% above the top band of the support/resistance zone shown on the chart, based on past data, the expectation is that naked investors will start selling and, thus, contain any rally absent a cure for the coronavirus.